Chart Of The Day: Taper Fears Lead To Biggest Monthly Loss In Bank Securities Portfolios Since Lehman

Wondering how the blow out in interest rates is impacting commercial banks, which just happen to have substantial duration exposure in the form of various Treasury and MBS securities, not to mention loans, structured products and of course, trillions in IR swap, derivatives and futures? Wonder no more: the Fed's weekly H.8 statement, and specifically the "Net unrealized gains (losses) on available-for-sale securities" of commercial banks in the US gives a glimpse into the pounding that banks are currently experiencing. In short: a bloodbath.

After crashing from $15 billion to just $6 billion, the reported balance of net unrealized gains is barely positive for just the first time since April 2011. And to think this number had topped out at over $43 billion in December 2012. But the worst is that monthly drop in "gains" of $24 billion is the biggest by a wide margin since the Lehman collapse.

Note the crash in the long-term chart:

And zoomed in:

The skeptics will say: $6 billion? Big deal. The Fed did almost that much in its POMO last Wednesday. The issue, however, is that the AFS line, which runs through the Accumulated Other Comprehensive Income line as the last thing banks want is for MTM to crush their reported bottom line is merely a proxy for how rising rates impact on a snapshot basis the consolidated bank balance sheet of US banks, which at last check had $7.3 trillion in loans and leases (still below pre-Lehman levels) not to mention countless other undisclosed instruments that represent their "London Whale" equivalent prop positions, funded with customer deposits.

In other words, the shorthand is to look at the massacre that is going on in the AFS line and extrapolate it to all other levered commercial bank (and hedge fund) rate exposure. Expect math PhD-programmed GETCO algos that determine the marginal momentum of the S&P to figure this out some time over the next 2-3 weeks once banks begin reporting results that are not quite in line with expectations.

The only bloodbath I see is in my account....my put options are in a sea of red...this has gone beyond any realm of logic. Oh well, this is my retirement account money which I dont think I will see that anyways when I retire at 90.

"In short: a bloodbath." When I see these banksters jumping from windows on wall street and around the world, and spilling their own toxic blood on the pavement below, then, and only then, can we can call it a BLOODBATH.

I imagined that I had a 12 inch dick, a bazillion dollars in the bank, had a super hawt girlfriend, a part time porno career and a flying boat plane. There fore I actually have all that stuff because I imagined it.

These are all net unrealized gains. Declaring the fictional as non-fiction.

Winner winner, chicken dinner! In a world of infinite rehypothecation, any shock to underlying collateral is like shaking the table under the house of cards. 100 bps move in Treasuries in a month (and the wrong direction if you own them) is giving the table a pretty good shake.

Really, for the Fed to have any kind of meaningful control over interest rates, they would need QE to be about 10x it's current size. They are presently a bug on the windshield vs. the IR swaps market.

good luck man. I learned the hard way not to short anything that can be bailed out and mark to unicorn.

I do think the banks may become the de facto way of playing the mining industry, as it seems they are intent on owning all of them. When the price of gold explodes and those bankrupt mining companies become the most valuable companies on the planet...of course the banks will be the way to play it.

I bought a grip of the $35 January 2015 calls when Goldman upped their S&P EOY to 1750. Made a killing flipping those in June.
Took my principle off the table & now holding the same position with just profits. No risk, now just waiting for rewards.

Same experience. Better to go 3x long the banks and 3x short the miners. Then you're following Ben's playbook, and since he and his buddies write the rules you're almost sure to be on the right side of the trade.

These banks are loaded with deposits right? I am pretty sure no one in the bank has seen their deposit rates go up. So the banks are now taking in the spread, so all I see is us getting bombarded with how great their net interest margin is due to rising rates.

They'll spin it one way or another that's for sure. Everything is peachy in fantasy land until something real goes wrong. And it still looks like they're going to hold it together for the time being. PMs firmly under control, I guess the only present wild card is oil. Bonds, I don't know, I still think they can crank up the monetization if need be, and not even tell anyone they're doing so.

The only thing for sure these days is no matter what is going on in the world, in the economy, with other asset classes, stocks are up. AMZN new high today!

Oil and USD denominated bonds are super duper linked to the actual problem, which is the rapid erosion and approaching end of USD hedgemony. That is the one and only thing that matters. There are interested parties in maintaining this hedgemony, and they are fighting like cornered animals, but they are very clearly losing. Those with "something to lose" aren't fans of waiting around for the shoe to drop, they didn't get to where they are by way of irrational loyalty.

It will be interesting to see how they "manage" the trillions in losses from the IR swaps as rates continue to rise. What you want to bet that MTM on govt securities, even if held as "available for sale" is "temporarily" suspended ..... and the beat goes on, LMAO.................

Objectively, what is a bank but a brick-and-mortar depository of one's extra paper money? Gold is not money, by tptb's own definitions - it's a commodity, like orange juice, or pork bellies used to make bacon, for your BLT - so why do you need to store it at a bank, why do they want to hold it?

I often wonder what it must've been like on that day when the banksters could confirm with absolute certainty that they had finally reached the point where they could not only completely rig the market, but they didn't even have to hide it anymore.

FED in process of fixering it now. S&P +11. They've returned to transfering the wealth of nations from te people to the banks and are doubling down. It is not their fault. They are like pedophiles and aren't able to stop until they are locked up.

Corporate fascist market controls running on autopilot with the moon dialed in. Several unicorns have been released, truckloads of skittles are on the way. The Dow and S&P should achieve escape velocity this week, and never fall back to earth.

A serious plus +100 for The Tyler's continuing the good fight against this rigged, widow making, fed driven shitstorm.
I'm pleased to announce that shitstorm has actually found its place in the German dictionary, at last. They recognized there was a gap in the language.

A serious plus +100 for The Tyler's continuing the good fight against this rigged, widow making, fed driven shitstorm.
I'm pleased to announce that shitstorm has actually found its place in the German dictionary, at last. They recognized there was a gap in the language.

It's clear that the Fed doesn't understand the relationship between QE, interest rates, and bond prices. I'm not of the belief that QE necessarily causes interest rates to fall and I don't believe the reason interest rates were so low is because of QE. If you have persistent deflationary conditions where you have massive levels of debt, no private sector credit demand, and falling asset values, which asset classes become good investments? Is it equities? Real estate? Alternate currencies like gold, silver, platinum? Real/productive assets? Or cash and cash equivalents(like government bonds)? The best choice in that situation is long-dated government bonds. Flattening yield curves across the zero lower bound over decades is actually the result of an extremely tight monetary policy where the private sector is not creating money(no credit creation from no private sector credit demand) and no government created money. This is exactly what happened to Japan over the past 20 years.

Let me explain the phenomenon a little bit further in a slightly different way. There is a short run liquidity effect from printing money to buy bonds that pushes bond prices up(more buyers than sellers). However, the information is then dissipated through the market. There is a short run effect that pushes bond prices up, but a longer term effect(higher inflation expectations and future economic risks) that actually pushes bond prices down and yields up.

I think the recent rise in bond yields has to do with banks and hedge funds borrowing short, buying the 10 year(or 30 year), and collecting the spread. Now, I think you're starting to see margin calls due to the leverage. I do think Treasury Yields are headed lower, especially if China goes into a full scale debt deflation while the Yen collapses. I'm really considering buying TLT at this point. I think deflationary pressures hit in the long run and Treasuries end up surging.